Standard Chartered Bank (Hong Kong) Ltd v. Chiu Kai Shing Dalex and Another

DCCJ 3529/2007

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 3529 OF 2007

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BETWEEN

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Coram : Deputy District Judge J. Ko in Chambers

Date of Hearing : 22^nd January 2008

Date of Handing Down of Judgment : 28^th January 2008

JUDGMENT

1.This is the Plaintiff’s application for summary judgment against the 2^nd Defendant.

2.The Plaintiff is a licensed bank carrying on banking business in Hong Kong.  By an application dated 4 May 2007, Mega Audio Industrial Limited (“Mega Audio”) applied to the Plaintiff for a business instalment loan.  The application was signed by the Defendants as directors and shareholders of Mega Audio.  The Defendants also signed a guarantee undertaking, inter alia, to pay and discharge all moneys advanced by the Plaintiff to Mega Audio and all other liabilities due from Mega Audio to the Plaintiff, provided that their liability shall not exceed $800,000.

3.A loan of $600,000 was subsequently approved by the Plaintiff and credited to Mega Audio’s account on 14 May 2007.  According to the drawdown advice dated 15 May 2007, the loan was repayable by monthly instalments over a period of 36 months.  Mega Audio did not make any repayment.  Demand letters sent to Mega Audio, the 1^st Defendant and the 2^nd Defendantdid not elicit any response.

4.The Plaintiff therefore commenced this action based on the guarantee to claim against the Defendants for the sum of $629,094.78, being the outstanding amount of the loan including interest as at 6 August 2007.  No notice of intention to defend was given by the 1^st Defendant and judgment was entered on 2 October 2007 against him on the amount claimed plus interest and costs.

5.The Plaintiff applied for summary judgment against the 2^nd Defendant.  At the hearing on 22 January 2008, the 2^nd Defendant applied for leave to introduce a further affirmation in opposition to the Plaintiff’s application.  The affirmation contains evidence relevant to the determination of the Plaintiff’s application.  A copy of that further affirmation had been sent in advance to the Plaintiff on 18 January 2008.  Notwithstanding its formal objection, the Plaintiff did not allege any real prejudice which could not be compensated by costs and the Plaintiff’s solicitor confirmed that he would proceed with the Plaintiff’s application.  I therefore allowed the 2^nd Defendant’s application and awarded the costs of the application to the Plaintiff payable forthwith, which was agreed by the parties at $1,000.

The law

6.Unless the defendant satisfies the court that there is an issue or question in dispute which ought to be tried or that there ought for some other reason to be a trial of the claim, the court may give judgment for the plaintiff under the summary judgment procedure: see Order 14, rule 3 of the Rules of the District Court.

7.The policy of summary judgment is to prevent delay in cases where there is no defence.  The primary obligation is on the defendant to “satisfy” the court that there is a triable issue or question or that there ought to be a trial for some other reason.  The defendant’s affidavit must condescend upon particulars and, as far as possible, state clearly and concisely what the defence is, and what facts are relied on to support it.  The test at this summary stage is whether the defendant’s assertions are believable.  See Hong Kong Civil Procedure 2008, para.14/4/3, 14/4/4, 14/4/8 and 14/4/9.

The defences

8.The 2^nd Defendant put forward the following arguments at the hearing:

(1)	That he has is a bona fide arguable defence based on misrepresentation by the 1st Defendant of the effect of the guarantee.
(2)	That there ought for some other reasons to be a trial.

(1) Arguable defence based on misrepresentation?

9.According to the affirmations filed by the 2^nd Defendant:

(a)	There was an agreement between him and the 1st Defendant for the 1st Defendant to buy out his shares in Mega Audio.  The agreement was recorded in a memorandum of the shareholders’ meeting held on 5 January 2007.  He was not involved in the management of the company since the signing of the agreement, although he was aware that Mega Audio was in financial difficulties.
(b)	Sometime in April 2007, the 1st Defendant asked him to sign an application to enable Mega Audio to apply for a bank loan guaranteed by the government and made available to small and medium-sized enterprises.  He initially refused, as he thought he no longer had any interest in Mega Audio.  However, the 1st Defendant told him that he was still a director as his notice of resignation had not been filed with the Companies Registry.
(c)	The 1st Defendant told him that the 1st Defendant urgently needed money and could not defer the application until after his notice of resignation had been filed.  If he refused to sign the application, Mega Audio would cease business, and the 1st Defendant would not be able to repay the loans he had advanced to the 1st Defendant or to pay for the purchase of the shares.  As he also had financial difficulties in his other business at the time, he felt he had no alternative but to agree to sign the application.
(d)	In May 2007, the 1st Defendant went to his office in the Mainland and produced some documents for him to sign.  The 1st Defendant represented to him that the documents were “simply a loan application”.
(e)	The 2nd Defendant has a primary 6 level of education and does not read English.  He relied on the 1st Defendant to explain the documents to him and signed the documents simply because he trusted the 1st Defendant.
(f)	Had he known he was required to sign a personal guarantee for the repayment of a loan from the Plaintiff to Mega Audio, he would not have done so.

10.Counsel for the 2^nd Defendant has clarified at the hearing that the 2^nd Defendant is not running the defence of non est factum.  I think this is sensible.  It is clear from the authorities that the pleais not available to those who signed without taking the trouble to find out at least the general effect of the document: Kincheng Banking Corp. v. Kao Yu Kuei [1986] 1 HKC 212.  Where a man signs a deed without knowing or inquiring as to its nature and effect and does so because of his trust placed on others, his intention is to sign the document that is placed before him whatever it may be, and there is no basis on which he may successfully plead non est factum: see Saunders v. Anglia Building Society [1971] AC 1004 at 1016D and 1036A-H; Wan Chow Ki v. Wan Chow Kan, HCA 1490/2002 at para.10-12.  The circumstances of this case is not too different from that in Kincheng Banking Corp. v. Kao Yu Kuei; 渣打銀行訴司徒超, HCMP 728/1999; Bank of Communications, Hong Kong Branch v. Yenwin Investments Limited, HCA 6014/1999; 渣打銀行訴余光文, CACV 211/2004; and Standard Chartered Bank (Hong Kong) Limited v. Leung Shu Kan, DCCJ 272/2007.  In all those cases, the defence based on non est factum failed.  Any plea of non est factum by the 2^nd Defendant in relation to the guarantee is, in my view, bound to fail.

11.Counsel for the 2^nd Defendant instead argues that the 2^nd Defendant was misled by the 1^st Defendant into signing the guarantee and that the Plaintiff is fixed with actual or constructive notice of such misrepresentation.  Her submission goes like this:

(a)	In support of its claim, the Plaintiff relies on three documents bearing the 2nd Defendant’s signature: the application; the guarantee; and the Form of Third Party’s Acknowledgment (“the Acknowledgement”).  All three documents were dated 4 May 2007.
(b)	The guarantee contains a statement that the 2nd Defendant’s signature was witnessed by Li Koon Chung Andy (“Andy Li”) who is a sales manager of the Plaintiff.
(c)	The Acknowledgment contains a statement that the Plaintiff (acting by its representative Andy Li) had pointed out several matters to the 2nd Defendant at a personal meeting held prior to the execution of the guarantee and in the absence of the borrower.  These matters include the nature and extent of the liability under the guarantee and the desirability of having independent legal advice before executing the guarantee.
(d)	However, the record kept by the Immigration Department shows that the 2nd Defendant was not in Hong Kong on 4 May 2007 and could not have attended the office of the Plaintiff to execute the documents.  It is therefore submitted that the documents were false and misleading.
(e)	It is submitted that an irresistible inference can be drawn from the circumstances of this case that the Acknowledgment was crucial to the Plaintiff in assessing whether to grant a loan to Mega Audio.  A reasonable and honest person in such circumstances would not have turned a blind eye and would have enquiried with the 2nd Defendant.  Further, an honest person would not have willfully attached his signature to a document which he knew was false and misleading, especially to a document which is crucial to the determination of the loan application.
(f)	Based on the judgment of Gibson J. in Baden v. Sociéte Générale pour Favoriser le Développement du Commerce et de l’Industrie en France SA [1992] 4 All E.R. 161 at 235, it is submitted that wilfully and recklessly failing to make such enquiries as an honest and reasonable man would make amount to actual knowledge.  It is therefore said that the Plaintiff has actual knowledge of the 1st Defendant’s misrepresentation.
(g)	Based on Royal Bank of Scotland plc. v. Etridge (No.2) [2002] 2 A.C. 773, it is submitted that if a bank with notice of the risk of any impropriety such as misrepresentation and/or undue influence and failed to take the requisite reasonable steps, then if it transpired that the signature of the surety had been procured by misrepresentation or undue influence, the bank will be fixed with constructive notice.  It is therefore said that the Plaintiff has constructive knowledge of the 1st Defendant’s misrepresentation.

12.The 2^nd Defendant is not alleging that the 1^st Defendant was acting as an agent of the Plaintiff when making the representation or that the Plaintiff was a party to the misrepresentation.  Rather, what the 2^nd Defendant is claiming is that the Plaintiff was or should be aware of the 1^st Defendant’s misrepresentation (i.e. actual or constructive knowledge).

13.To start with, I find the alleged misrepresentation unreal and incredible.  The 2^nd Defendant case is premised upon the fact that the guarantee is in English and he does not read English so much so that he had to rely on the 1^st Defendant to explain the effect of the document to him.  The Plaintiff’s solicitor has produced the original guarantee at the hearing.  The document is a single spread document of 3 pages, with the terms and conditions and signature page in English printed on one side and the terms and conditions and signature page in Chinese printed on the other side.  The Chinese version of the guarantee is clearly marked with the words “担保書” at the top right-hand corner on the first page.  The 2^nd Defendant admits having signed the guarantee.  It is not his case that he could not read Chinese or that he had for some reason not been able to read the document.  In those circumstances, I do not see how the 2^nd Defendant can now say that he relied on the representation of the 1^st Defendant as to the effect of the guarantee.  This is all the more so as the 2^nd Defendant is a seasoned businessman who has his own other businesses and has been a director/shareholder of Mega Audio since August 2004.  It is not uncommon in Hong Kong for a director or shareholder to provide a personal guarantee to secure loans to the company.  By his own admission, he has certainly provided a guarantee for Mega Audio in favour of Shanghai Commercial Bank before.  Although the 2^nd Defendant claims that he has agreed to sell his shares to the 1^st Defendant, such transaction has not been completed even up to now and the 2^nd Defendant retains an interest in Mega Audio.  In any event, the 2^nd Defendant has demonstrated in his evidence that it was for his own financial interest that he signed the documents.  Further, the demand letter sent by the Plaintiff to the 2^nd Defendant clearly alleged that the 2^nd Defendant was liable as a guarantor.  If the 2^nd Defendant had been misled by the 1^st Defendant as alleged, one would expect him to have responded to the demand letter.  Yet, there is no such evidence in this case.

14.The 2^nd Defendant is trying to elevate into a defence the factual disputes as to whether Andy Li did witness the 2^nd Defendant’s signature on the guarantee and whether there was a private meeting between Andy Li and the 2^nd Defendant prior to the signing of the guarantee.  His counsel submits that given the facts that Andy Li did not in fact witness the signature or meet with the 2^nd Defendant prior to the execution of the guarantee, Andy Li should have enquired with the 2^nd Defendant instead of attaching his own signature to the guarantee and the Acknowledgement.  Had enquiry been made, so she argues, Andy Li would have discovered that the 2^nd Defendant was no longer a shareholder/director of Mega Audio and that the misrepresentation had been made by the 1^st Defendant and so the Plaintiff should be fixed with knowledge of the misrepresentation.

15.Since the 2^nd Defendant is not disputing his signature on the documents, it is of no significance whether Andy Li in fact witnessed his signatures.

16.There is no suggestion that the Plaintiff had been informed of the agreement for the sale of shares from the 2^nd Defendant to the 1^st Defendant.  Quite to the contrary, the 2^nd Defendant expressly represented on the application that he was a shareholder and director of Mega Audio and that he would notify the Plaintiff of any change.  There is really nothing in this case that would put the Plaintiff on inquiry as to any risk that the 2^nd Defendant’s agreement to provide a guarantee might have been tainted by some equitable wrongs.  In those circumstances, the Plaintiff was not obliged to advise the 2^nd Defendant as to the effect of the guarantee or to advise the 2^nd Defendant to seek independent advice: see Kincheng Banking Corp. v. Kao Yu Kwei [1986] HKC 212 at 215; Chekiang First Bank Limited v. Ng Chun Hing Benjamin, HCA 3473/2000, at para.18.  Hence, whether a private meeting was in fact held between Andy Li and the 2^nd Defendant in the absence of anyone from Mega Audio is again not significant. 

17.In the premises, I cannot see how those factual disputes could amount to a defence for the 2^nd Defendant to resist the Plaintiff’s claim.

(2) Some other reason for trial?

18.The 2^nd Defendant’s counsel says the circumstances of this case give rise to a number of crucial questions:

(a)	Given the requirement of a private meeting between the Plaintiff and the 2nd Defendant in the absence of Mega Audio prior to the execution of the guarantee, why would the Acknowledgement be released to the 1st Defendant for him as agent for Mega Audio to procure the 2nd Defendant’s signature?
(b)	Why did Andy Li sign on the guarantee as a witness when he knew full well that he did not witness the 2nd Defendant’s signature?  What if the 2nd Defendant’s signature was forged?
(c)	Why did Andy Li sign on the Acknowledgement when he knew full well that he had not held a private meeting with the 2nd Defendant?
(e)	What was Andy Li’s relationship with Mega Audio?  Were there any improper or even illegal dealings between them?

19.She submits that the court should grant unconditional leave to defend where there are unexplained features of the claim which are disturbing because they bear the appearance of falsity and disreputable business dealings and questionable conduct.

20.When asked how an investigation of the above questions would assist the 2^nd Defendant in resisting the Plaintiff’s claim, she said that much would depend on the result of such inquiry and it is difficult to say at this stage.

21.As I have stated before, the policy of summary judgment is to prevent delay when there is really no defence.  What I said in paragraphs 14 to 16 above is also pertinent here.  A desire to investigate alleged obscurities and a hope that something will turn up upon further investigation cannot, separately or together, amount to sufficient reason for refusing to enter judgment for the Plaintiff: see Hong Kong Civil Procedure 2008, para.14/4/3.  Granting leave to the 2^nd Defendant to defend hoping that something somehow would turn up in his defence is, in my view, not appropriate. 

Conclusion

22.The 2^nd Defendant has failed to satisfy me that there is an issue or question in dispute which ought to be tried or that there ought for some other reason to be a trial of the claim.  Judgment is therefore entered for the Plaintiff and against the 2^nd Defendant for $629,094.78, together with interest on $600,000 at the rate of 9.6% p.a. from 7 August 2007 to the date of judgment and thereafter at the judgment rate until payment.

23.There is nothing to justify a departure from the usual rule that costs should normally follow the event.  Pursuant to clause 1(c) of the guarantee, the Plaintiff is entitled to indemnity costs against the 2^nd Defendant.  I therefore order the 2^nd Defendant to pay the Plaintiff’s costs of the action and the costs of this application (including all reserved costs) on an indemnity basis, to be taxed if not agreed.

Mr. Steven Cheng of Messrs. Siao, Wen & Leung for the Plaintiff.

Ms. Christine Leung instructed by Messrs. Robertsons for the 2^nd Defendant.